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Wealthy hit by soaring mortgage rates as Covid purchases go ‘horribly wrong’

High-end property repossessions rise as Covid purchases go ‘horribly wrong’
High-end property repossessions rise as Covid purchases go ‘horribly wrong’

Home repossessions are rising among properties worth more than £5m as even the wealthiest are hammered by a jump in mortgage rates, experts have said.

Buying agents said there has been a rise in high-end property listings because of repossessions in the last six months, with examples seen across the country including the Cotswolds and the South Coast.

In normal circumstances owners would sell the properties and pay off their debts, but they are increasingly struggling to do so in a slowing market.

Jonathan Hopper, chief executive of buying agents Garrington Property Finders, said many have been reaching the end of lower fixed-rate deals after having made “emotional decisions during the pandemic, bought with their hearts not heads, and got it horribly wrong”.

In a recent example an owner had taken out expensive, non-conventional financing because they were older and could no longer get a standard mortgage, but the rates had since jumped even more.

Mr Hopper said it has become more difficult for people to remortgage because of higher amounts of income needed and changing property values.

At the same time, he said it can be difficult to sell quickly because the “market has shifted and there is just no demand for certain types of property and certain price brackets”.

Philip Harvey, of buying agents Property Vision, said there has also been an increase in second homes being repossessed from international buyers in London. Typically these properties are worth £10m to £20m, he said.

Mr Harvey said wealthy overseas individuals were “walking away” because it is cheaper than refixing in the current mortgage market.

He added: “It’s strategic. People borrow heavily when they’re buying those assets for all sorts of tax reasons. Because money’s cheap and they can do other things with their money that makes them more money, so they don’t need to use their own cash, they borrow it instead.

“But when the market turns and the capital value has gone down, why hold on to it?”

Mr Harvey said it can be “easier for owners to walk away than refinance expensively”.

If they are international buyers, he said it can be difficult for banks to track them down to get back the rest of the money they are owed.

However, some stand to benefit from a rise in repossessions. “Unfortunately, it’s a sad reflection of a changed market. But it does present opportunities for buyers that have been more strategic and have been waiting on the sidelines for the market to come down,” explained Mr Hopper.

Typically the properties will first be made available off market but will fail to sell, prompting a public listing at a lower price, and a subsequent listing without the furniture at an even bigger discount.

Mr Hopper said he expected repossessions of premium properties to continue rising next year as more people reach the end of cheap pandemic-era mortgage deals.

Nathan Emerson, chief executive of trade body Propertymark, said banks have become much stricter with their lending criteria which has made it more difficult for people to remortgage alongside higher rates.

In previous market downturns in the 1980s and 1990s, he said repossessions also typically hit higher-price properties first before affecting cheaper homes because people had taken out much bigger loans.

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Patricia McGirr, of the Repossession Rescue network and mortgage broker Finanze, said some property owners are ending up in situations where their debts are worth more than what they’re going to be able to sell their properties for.

Ms McGirr, who helps people facing repossessions through her work with the Repossession Rescue network, said she has seen an increase of people with homes worth more than £1m facing repossessions.

She said: “I’m certainly seeing more people at the higher end of the market who are struggling.”

Ms McGirr said the cost of living crisis “has bitten everybody”, adding: “There’s a bit of a fallacy that it’s only those on lower incomes who suffer as a result of being in debt.”

Sometimes those facing repossession own businesses and other investments that have also been negatively impacted, leading to knock-on effects.

Ms McGirr said landlords are “tearing their hair out because the tight margins that we have on buy-to-let has had an impact on their income, which has had an impact on their ability to keep their own residence afloat”.

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